NOTES TO FINANCIAL STATEMENTS

21. Financial liabilities - borrowings

	Group		Company
	2007 £000	2006 £000	2007 £000	2006 £000
Current
Bank overdrafts	6,447	1,672	4,029	808
Obligations under finance leases	14	33	-	-
	6,461	1,705	4,029	808
Non-current
Bank loans	9,811	6,955	5,200	2,600
Obligations under finance leases	9	5	-	-
	9,820	6,960	5,200	2,600
Total borrowings	16,281	8,665	9,229	3,408

Bank overdrafts of the Group of £1,700,000 (2006: £1,672,000) are denominated in euros and offset euro cash deposits outside of the UK under a pan European notional pooling agreement. The balances are offset for interest calculation purposes with the net balance accruing interest at a floating rate by reference to EuroBid.

Bank loans represent a sterling medium-term revolving credit facility that is unsecured as at both 28 May 2006 and 3 June 2007 and can be drawn in both sterling and euros. Covenants are based upon interest cover and gearing. Interest accrues at a floating rate by reference to LIBOR.

Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default and accrue interest at a fixed rate of 13% per annum.

The minimum lease payments under finance leases fall due as follows:

	2007 £000	2006 £000
Within 1 year	16	36
Between 1 and 5 years	10	5
	26	41
Future finance costs on finance leases	(3)	(3)
Present value of finance lease liabilities	23	38

Maturity profile of borrowings:

	2007				2006
Group	Bank loans £000	Bank overdrafts £000	Finance leases £000	Total £000	Bank loans £000	Bank overdrafts £000	Finance leases £000	Total £000
Within 1 year	-	6,447	14	6,461	-	1,672	33	1,705
Between 1 and 2 years	9,811	-	9	9,820	-	-	5	5
Between 2 and 5 years	-	-	-	-	6,955	-	-	6,955
	9,811	6,447	23	16,281	6,955	1,672	38	8,665

	2007			2006
Company	Bank loans £000	Bank overdrafts £000	Total £000	Bank loans £000	Bank overdrafts £000	Total £000
Within 1 year	-	4,029	4,029	-	808	808
Between 1 and 2 years	5,200	-	5,200	-	-	-
Between 2 and 5 years	-	-	-	2,600	-	2,600
	5,200	4,029	9,229	2,600	-	3,408

The Company held no finance leases at either year end.

The carrying amounts of the Group and Company’s borrowings are denominated in the following currencies:

	Group		Company
	2007 £000	2006 £000	2007 £000	2006 £000
Sterling	9,948	2,629	9,229	3,408
Euro	6,310	6,027	-	-
US dollar	23	9	-	-
	16,281	8,665	9,229	3,408

Undrawn borrowings
The bank borrowing facilities of the Group, drawn and undrawn, are as follows:

			2007				2006
		Currency	Effective interest rate at May 2007	Drawn £000	Undrawn £000	Total £000	Effective interest rate at May 2006	Drawn £000	Undrawn £000	Total £000
Committed :
-	Medium-term revolving credit facility	sterling	6.35%	5,000	-	5,000	5.25%	2,600	2,400	5,000
-	Medium-term revolving credit facility	euro	4.60%	4,811	189	5,000	3.25%	4,355	645	5,000
				9,811	189	10,000		6,955	3,045	10,000
Uncommitted:
-	Bank overdraft - working capital facility	sterling	6.35%	4,747	5,253	10,000	5.25%	-	5,000	5,000
-	Bank overdraft	euro	4.50%	1,700	3,300	5,000	3.25%	1,672	3,328	5,000
Total facilities for the Group				16,258	8,742	25,000		8,627	11,373	20,000

Bank borrowings attract floating rate interest by reference to sterling and euro base rates. The medium-term revolving credit facility is unsecured, and is available until 1 September 2008. The terms of the facility allow draw down in both sterling and euros.

Bank overdrafts are unsecured. The working capital facility includes an additional £5,000,000 (2006: £10,000,000) seasonal overdraft which ran from 1 August to 31 December in both years.

Following the year end, the Group increased the revolving credit facility to £15,000,000 and reduced the working capital facility to £5,000,000 (£10,000,000 up to 31 January with an additional £1,000,000 between 1 November and 31 December).

The fair value of borrowings does not differ from the book value.

22. Derivative financial instruments
The Group's treasury function deals primarily with cash management and managing currency exposures as detailed below:

Financial risk management objectives and policies
The Group's financial risk management objective is to reduce the financial risks and exposures facing the business with respect to changes in foreign exchange rates and interest, and to ensure constant access to sufficient liquidity. To achieve this the Group undertakes an active hedging policy, including the use of derivatives (forward currency contracts), which are entered into under policies approved and monitored by the group finance director. These transactions are only undertaken to reduce exposures arising from underlying commercial transactions and at no time are transactions undertaken for speculative reasons.

Foreign currency risk
The majority of the Group's business is transacted in sterling, euros and US dollars. The principal commercial currency of the Group is sterling. The Group seeks to manage currency exposure wherever possible.

In each country where the Group has an operation, revenue generated and costs incurred are primarily denominated in the relevant local currency, so providing a natural currency hedge. In addition, intra-group trading transactions are netted and settled centrally. Any remaining material foreign currency transaction exposures are hedged as appropriate using forward foreign currency contracts.

With regard to translation exposures, the policy is to match the average assets of the Group to the equivalent average liabilities in each major currency and thus minimise any impact to the Group. To the extent that this does not occur, foreign currency borrowings are used.

Interest rate risk
The Group's interest rate risk primarily arises from the Group's borrowings and finance leases. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.

The Group has an exposure to movements in interest rates, primarily in sterling and euros.

To manage these risks wherever possible, the Group offsets financial liabilities against financial assets in the same currency. This process is facilitated through a pan European cash pooling arrangement and external borrowings in more than one currency. The board periodically reviews the Group's exposure to interest rate fluctuations, and this exposure has not been significant in recent years.

Liquidity risk
The seasonal nature of the business necessitates higher levels of working capital in the months between September and January as inventories and trade receivables build up in advance of and during the Christmas period. Consequently, the Group ensures that it has a core level of medium-term funding in place and supplements this with an increased working capital facility in the winter period.

Credit risk
The Group controls credit risk from a treasury perspective by only entering into transactions involving financial instruments with authorised counter-parties of strong credit quality, and such positions are monitored regularly. Credit risk on cash, short-term deposits and derivative financial instruments is limited because the counter-parties are banks with high credit ratings assigned by international credit rating agencies.

There is no concentration of credit risk with respect to trade receivables, as the Group has a large number of customers that are internationally dispersed. Policies are also in place to ensure the wholesale sales of products are made to customers with an appropriate credit history.

Sales made through our own Hobby stores or via direct are made in cash or with major credit cards.

The numerical financial instruments disclosures are set out below:

Recognised fair values of derivative financial instruments
Forward foreign exchange contracts and embedded derivatives are measured at fair value by reference to year end market values. The full fair values of hedging derivatives are classified as current assets or liabilities as the remaining maturity of all hedged items is less than 12 months.

	2007		2006
Group	Current assets £000	Current liabilities £000	Current assets £000	Current liabilities £000
Forward foreign exchange contracts - cash flow hedges	24	(120)	181	(14)
Total	24	(120)	181	(14)

In accordance with IAS 39, 'Financial Instruments: Recognition and Measurement', the Group has reviewed all contracts to identify embedded derivatives that are required to be separately accounted for if they do not meet certain requirements set out in the standard. The fair value of such embedded derivatives at 3 June 2007 was £nil (2006: £nil).

Net fair values of derivative financial instruments
The net fair values of derivative financial instruments and designated for cash flow hedges at the balance sheet date are:

Group	2007 £000	2006 £000
Contracts with positive fair values:
- Forward foreign currency contracts - cash flow hedges	24	181
Contracts with negative fair values:
- Forward foreign currency contracts - cash flow hedges	(120)	(14)
Net fair value of cash flow hedges	(96)	167

The Company held no financial derivatives at either year end.

The principal amounts of the outstanding forward foreign currency contracts at 3 June 2007 are £12,171,000 (2006: £17,100,000).

The net fair value losses at 3 June 2007 on open forward foreign exchange contracts that hedge the foreign currency risk of anticipated future sales (cash flow hedge) are £88,000 (2006: £86,000 gain) and are recognised in the hedging reserve. These will be transferred to the income statement when the forecast sales occur over the next 12 months.

There are no derivatives outstanding at either year end that were designated as fair value hedges.

23. Trade and other payables - current

	Group		Company
	2007 £000	2006 £000	2007 £000	2006 £000
Trade payables	3,698	4,035	21	15
Payables due to related parties	-	-	284	71
Loans from related parties	-	-	2,530	2,479
Other taxes and social security	1,792	2,479	43	11
Other payables	1,368	1,088	94	60
Accruals and deferred income	7,031	8,112	180	343
	13,889	15,714	3,152	2,979

The fair value of trade and other payables does not differ from the book values.

24. Other non-current liabilities

	Group		Company
	2007 £000	2006 £000	2007 £000	2006 £000
Accruals and deferred income	958	1,317	-	-
Loans from related parties	-	-	1,503	1,503
	958	1,317	1,503	1,503

The fair value of other non-current liabilities does not differ from book values.

25. Provisions

Analysis of total provisions:

	Group		Company
	2007 £000	2006 £000	2007 £000	2006 £000
Current	3,225	584	193	3
Non-current	1,283	927	18	17
	4,508	1,511	211	20
Group	Redundancy £000	Employee benefits £000	Property £000	Total £000
At 29 May 2006	-	615	896	1,511
Charged/(credited) to the income statement:
- Additional provisions	1,573	326	1,535	3,434
- Unused amounts reversed	-	(33)	(161)	(194)
Exchange differences	-	(4)	(14)	(18)
Increase in provision - discount unwinding (note 8 )	-	-	27	27
Utilised	(17)	(16)	(219)	(252)
At 3 June 2007	1,556	888	2,064	4,508
Company		Redundancy £000	Employee benefits £000	Total £000
At 29 May 2006		-	20	20
Charged/(credited) to the income statement:
- Additional provisions		193	-	193
- Unused amounts reversed		-	(2)	(2)
At 3 June 2007		193	18	211

Employee benefits
The Group operates a long service incentive scheme under which employees receive a one off additional holiday entitlement of two weeks when they reach ten years of employment (10 Year Veterans). The provision therefore is expected to be utilised over this period. The costs of these benefits are accrued over the period of employment based on expected staff retention rates and the anticipated future employment costs discounted to present values.

Property provisions
Property provisions relate to committed costs outstanding under onerous or vacant lease commitments and will diminish over the lives of the underlying leases. £327,000 (2006: £431,000) of the above provision is expected to be utilised between 2010 and 2016. The estimated liability is discounted at the Group's weighted average cost of capital of 9% (2006: 9%).

Redundancy provisions
Redundancy provisions relate to the costs of redundancy incurred as part of the cost reduction programme. The provisions are expected to be utilised by the end of 2008/9.

26. Share capital

Group and Company	Number of shares (thousands)	Ordinary shares £000	Share premium account £000	Total £000
At 29 May 2005	31,067	1,553	7,592	9,145
- Proceeds from shares issued	62	3	230	233
At 28 May 2006 and at 3 June 2007	31,129	1,556	7,822	9,378

The total authorised number of shares is 42,000,000 shares (2006: 42,000,000 shares) with a par value of 5p per share (2006: 5p per share). All issued shares are fully paid.

Share options
Share options outstanding at the end of the year have the following expiry dates and exercise prices:

Date granted	No. of shares			Exercise price in pence per share	Exercise dates
	2007	2006
17 September 1996	-	5,000		463p	Sep 1999 to Sep 2006
24 August 1999	-	4,348		460p	Aug 2002 to Aug 2006
24 August 1999	10,870	10,870		460p	Aug 2002 to Aug 2009
31 July 2001	2,508	2,508		392.5p	July 2004 to July 2008
25 July 2003	12,746	12,746		-	June 2005 to July 2008
30 September 2003	-	34,243		580p	Nov 2006 to Apr 2007
28 September 2004	32,328	54,942		581.2p	Nov 2007 to Apr 2008
18 October 2005	166,035	291,215		340p	Nov 2008 to Apr 2010
1 November 2005	8,219	19,139		329.5p	Nov 2007
25 September 2006	220,700	-		292.6p	Nov 2009 to Apr 2011
25 September 2006	5,355	-		304.6p	Nov 2009 to Apr 2011
2 October 2006	7,820	-		336p	Nov 2008
	466,581	435,011

Movements in the number of share options outstanding are as follows:

	2007		2006
	Approved and unapproved share schemes	Long-term incentive plan	Approved and unapproved share schemes	Long-term incentive plan
At start of year	422,265	12,746	309,275	290,196
Granted	268,383	-	347,578	-
Forfeited	(236,740)	-	(173,092)	-
Exercised	(73)	-	(61,496)	(277,450)
At end of year	453,835	12,746	422,265	12,746

Movements in the weighted average exercise price of the approved and unapproved share schemes are as follows:

	2007	2006
At start of year	396p	494p
Granted	294p	339p
Forfeited	395p	478p
Exercised	340p	335p
At end of year	337p	396p

During the year 73 ordinary shares of 5p were issued for £248 under the Games Workshop Group PLC 2005 Savings-Related Share Option Scheme. Out of the 453,835 outstanding options under the share option schemes (2006: 422,265 options), no options (2006: no options) were exercisable at 3 June 2007. Out of the 12,746 options outstanding under the long-term incentive plan, 12,746 options were exercisable at 3 June 2007.

IFRS 2 'Share-based Payment' requires the fair value of all share options granted after 7 November 2002 to be charged to the income statement. For options granted after 7 November 2002, the fair value of the option must be assessed on the date of each grant.

The fair value of share options granted is determined using the Black-Scholes valuation model. The significant inputs into the model were as follows:

Group and Company	Share price (pence)	Option exercise price (pence)	Vesting period	Option life	Expected volatility	Risk free rate of return (%)	Dividend yield (%)	Fair value per option (pence)
Employee sharesave schemes:
Games Workshop Group PLC 1995 Sharesave Scheme 2004 granted options	740p	581.2p	36 mths	42 mths	26%	4.8%	2.5%	220.8p
Games Workshop Group PLC 2005 Savings-Related Share Option Scheme 2005 granted options - non-US employees	377p	340p	36 mths	42 mths	36%	4.5%	5.0%	90.9p
Games Workshop Group PLC 2005 Savings-Related Share Option Scheme 2005 granted options - US employees	385p	329.5p	24 mths	24 mths	41%	4.5%	4.9%	100.9p
Games Workshop Group PLC 2005 Savings-related Share Option Scheme 2006 granted options - non US and French employees	389p	292.6p	36 mths	42 mths	31%	4.8%	4.9%	112.4p
Games Workshop Group PLC 2005 Savings-Related Share Option Scheme 2006 granted options - US employees	396p	336p	24 mths	24 mths	35%	4.8%	4.8%	94.9p
Games Workshop Group PLC 2005 Savings-Related Share Option Scheme 2006 granted options - French employees	389p	304.6p	36 mths	42 mths	31%	4.8%	4.9%	106.4p

The expected volatility was determined by reference to the volatility in the share price using rolling one year periods for the three years immediately preceding the grant date. The risk free rate of return is based upon UK gilt rates with an equivalent term to the options granted. Dividend yield is based on historic performance. 75% of options are assumed to vest in the above calculation.

27. Other reserves

	2007				2006
Group	Capital redemption reserve £000	Translation reserve £000	Other reserve £000	Total £000	Capital redemption reserve £000	Translation reserve £000	Other reserve £000	Total £000
Beginning of year	101	353	(1,050)	(596)	101	486	(1,050)	(463)
Net investment hedge	-	-	-	-	-	(2)	-	(2)
Exchange differences on translation of foreign operations	-	(614)	-	(614)	-	(131)	-	(131)
End of year	101	(261)	(1,050)	(1,210)	101	353	(1,050)	(596)

The other reserve was created on flotation following a payment to the previous holders of the Company's ordinary shares.

As at 3 June 2007 the Company's capital redemption reserve was £101,000 (2006: £101,000). The Company had no other reserves in addition to the capital redemption reserve at either year end.

28. Retained earnings

	Group				Company
	Hedging reserve £000	Treasury shares £000	Profit and loss £000	Total £000	Treasury shares £000	Profit and loss £000	Total £000
At 30 May 2005	232	(1,132)	35,960	35,060	(1,132)	22,732	21,600
Profit attributable to equity shareholders	-	-	1,998	1,998	-	3,769	3,769
Cash flow hedges:
- Fair value gains in the year	86	-	-	86	-	-	-
- Transfers to net profit	(331)	-	-	(331)	-	-	-
Current tax	73	-	-	73	-	-	-
Shares vested	-	1,083	(1,083)	-	1,083	(1,083)	-
Dividends paid	-	-	(5,874)	(5,874)	-	(5,874)	(5,874)
Share-based payments	-	-	168	168	-	168	168
Issue of ordinary share capital	-	-	(26)	(26)	-	-	-
At 28 May 2006 and 29 May 2006	60	(49)	31,143	31,154	(49)	19,712	19,663
(Loss)/profit attributable to equity shareholders	-	-	(3,481)	(3,481)	-	9,398	9,398
Cash flow hedges:
- Fair value losses in the year	(88)	-	-	(88)	-	-	-
- Transfers to net profit	(86)	-	-	(86)	-	-	-
Deferred tax	26	-	-	26	-	-	-
Current tax	26	-	-	26	-	-	-
Dividends paid	-	-	(5,904)	(5,904)	-	(5,904)	(5,904)
Exchange differences	-	-	-	-	-	(18)	(18)
Share-based payments	-	-	42	42	-	42	42
At 3 June 2007	(62)	(49)	21,800	21,689	(49)	23,230	23,181

Cumulative goodwill relating to acquisitions made prior to 1998, which has been eliminated against reserves, amounts to £1,159,000 (2006: £1,159,000).

Own shares are held in treasury by the Games Workshop Employee Share Trust, a discretionary trust, to satisfy options and awards granted under a former long-term incentive plan. The number and market value of the ordinary shares held in treasury by the ESOP at 3 June 2007 was 12,746 (2006: 12,746) and £35,000 (2006: £35,000) respectively. Dividends have been waived on these shares. Interests in own shares represent the cost of 12,746 of the Company's ordinary shares (nominal value of £250) purchased in earlier years. These shares were acquired in the open market using funds provided by Games Workshop Group PLC to meet obligations under the long-term incentive plan.

29. Reconciliation of (loss)/profit to net cash from operations

	Group		Company
	2007 £000	2006 £000	2007 £000	2006 £000
(Loss)/profit attributable to equity shareholders	(3,481)	1,998	9,398	3,769
Income tax expense/(credit)	622	1,660	(625)	(1,033)
Depreciation of property, plant and equipment	6,925	7,145	-	-
Impairment loss on property, plant and equipment	306	-	-	-
Loss on disposal of property, plant and equipment (see below)	95	113	-	-
Amortisation of capitalised development costs	2,525	2,289	-	-
Amortisation of other intangibles	720	736	-	-
Impairment of related party loans	-	-	-	1,225
Finance income	(326)	(238)	(525)	(142)
Finance costs	1,168	908	661	477
Net fair value (gains)/losses on derivative financial instruments	88	(43)	-	-
Dividend income	-	-	(11,100)	(7,358)
Share-based payments	42	168	42	168
Exchange gains on borrowings	(58)	(111)	(74)	(116)
Changes in working capital:
- Decrease in inventories	901	465	-	-
- Decrease in trade and other receivables	128	948	466	1,197
- Decrease in trade and other payables	(2,326)	(562)	986	(325)
- Increase in provisions	3,012	313	191	5
Net cash from operating activities	10,341	15,789	(580)	(2,133)

In the cash flow statement, proceeds from the sale of property, plant and equipment comprise:

	Group
	2007 £000	2006 £000
Net book amount	108	145
Loss on sale of property, plant and equipment	(95)	(113)
Proceeds from sale of property, plant and equipment	13	32

The Company sold no property, plant and equipment at either year end.

30. Analysis of net debt

Group	As at 28 May 2006 £000	Cash flow £000	Non-cash changes £000	Exchange movement £000	As at 3 June 2007 £000
Cash at bank and in hand	6,444	(229)	-	(112)	6,103
Current borrowings - bank overdraft	(1,672)	(4,780)	-	5	(6,447)
Cash and cash equivalents	4,772	(5,009)	-	(107)	(344)
Non-current borrowings	(6,955)	(2,908)	-	52	(9,811)
Finance leases	(38)	41	(28)	2	(23)
Net debt	(2,221)	(7,876)	(28)	(53)	(10,178)
Company			As at 28 May 2006 £000	Cash flow £000	As at 3 June 2007 £000
Current borrowings - bank overdraft			(808)	(3,221)	(4,029)
Cash and cash equivalents			(808)	(3,221)	(4,029)
Non-current borrowings			(2,600)	(2,600)	(5,200)
Net debt			(3,408)	(5,821)	(9,299)

31. Reconciliation of net cash flow to movement in net debt

	Group		Company
	2007 £000	2006 £000	2007 £000	2006 £000
Decrease in cash and cash equivalents in the year	(5,009)	(3,845)	(3,221)	(2,923)
Cash (inflow)/outflow from (increase)/decrease in debt and lease financing	(2,867)	(1,812)	(2,600)	2,400
Change in net debt resulting from cash flows	(7,876)	(5,657)	(5,821)	(523)
Exchange movement	(53)	(5)	-	-
New finance leases	(28)	-	-	-
Net (debt)/funds at start of year	(2,221)	3,441	(3,408)	(2,885)
Net debt at end of year	(10,178)	(2,221)	(9,229)